More to the mortgage story

The New York Times on Monday published a column by Yves Smith that unfortunately tells only a small part of the story when it comes to mortgages.

For example, Smith neglects to explain that, while the vast majority of homeowners in the United States are current on their mortgages, the foreclosures he rails against are happening to people who have not made any monthly payments for as long as two years.

He also doesn’t mention that a foreclosure is almost always the final option a servicer considers and that it is only contemplated after all of the other options – modifications of the existing loan, short sales, and deeds-in-lieu — have been tried. And, while Smith recommends that servicers consider principal reductions, he fails to say that what he is suggesting already is standard practice by many. Smith’s suggestion that the practice be expanded to include everyone who might feel better with a smaller loan balance makes little sense from almost any rational point of view.

The processing issues Smith raises are similarly one-sided. Lenders are already voluntarily addressing the situation without the state or federal government action he says is needed. And, as Smith himself suggests, in the few cases where the appropriate paperwork isn’t available for some reason, the servicers have stopped the foreclosure process.

The one thing Smith notes correctly is that the situation facing servicers and borrowers alike is unprecedented because, in his own words, “…the volume of (mortgage) transactions exploded.” Lenders, servicers, and investors are doing what needs to be done to deal appropriately with this explosion and Smith and other analysts need to start recognizing the effort they’re making and the importance to the economy of what they’re doing.